Prof. Dr. J. Strikwerda CMC

Transcription

1 November 15, 2010 Prof. Dr. J. Strikwerda CMC Director Nolan Norton Institute Partner Nolan, Norton & Co. Professor of Organization & Change Amsterdam Business School

2 What is beyond Nolan s S-curves? Organizational Learning Industrial Economy Transitional Economy Information Economy Period of Traditional Principles Period of Creative Destruction Period of Transformed Enterprise Integrated Enterprise / open (e-) business models November 15, 2010 Nolan, Norton & Co 2

3 Why are there so many horror stories about failed or out-of-control ERP projects? Because many CEO s, CFO s and CIO s, as well as consultancies, and even academics, still are trapped in industrial economy based paradigms on business, organization and management The worst thing a CEO can do is to hire a chief information officer (CIO) with the intention of delegating responsibility for information management to an expert. This is an abdication of essential powers because information management is inseparable from the essence of every managerial act. Paul Strassmann 1994 November 15, 2010 Nolan, Norton & Co 3

4 Do successes exist? Yes Observed benefits of enterprise systems / ERP: Higher strategic maneuverability IBM Nestlé ASML Wal-Mart Albert Heijn Sabic SVB Competitiveness through information dominance Competitiveness through business model innovation Higher value appropriation from the market Higher degree of sensing the customer Faster and more precise response to customers Higher degree of exploitation of synergies Better exploitation and development of (tacit) knowledge through resource mobilization Higher attractiveness to creative knowledge workers Lower agency costs Lower costs of the finance function Lower costs in modular back office processes Lower cost of capital, less capital tied up Lower costs of processes Convincing business case for IT-investments November 15, 2010 Nolan, Norton & Co 4

5 Alignment trap 1: ES/ERP-systems are configured on basis of the unit-organization, which economically is obsolete Fuzzy front-end Development Commercialization MDO I/P in-sourced for development Products in-sourced for scale-up Inputs In-sourced ideas & technologies I/P licensing Technology Spin-outs Open business models Structure = tool for organizing & managing information Information is organized disembedded from structure November 15, 2010 Nolan, Norton & Co 5

6 Alignment trap 2: ERP-systems are based on accounting profit and subsequently defined management information whereas firms should be managed on basis of economic profit and management information defined by that % Relevant information o Management Information comprises: Financial and non-financial information Leading en lagging parameters External- and internal information Structured and non-structured data Discursive information and disinformation (+ frames to cope with - ) o Information must be: Relevant but redundant Timely Trustworthy: individuals must understand where information comes from, from who; ex-post data debriefing (feedback) closes the loop in the trust cycle Accessible for all on the same team (= not used for internal power games) % Accuracy % Timeliness o Information must: Trigger the strategic development, innovation, exploration, learning processes Create a competitive strength Trigger timely adaptation and transformation, create discomfort Enable accountability, compliance November 15, 2010 Nolan, Norton & Co 6

7 Alignment trap 3: ERP-systems are based on budget-driven, bottom-up resource allocation as method for strategy execution, whereas modern strategy execution is based on validated cause-and-effect relations Bower s (1970) bottom-up Resource Allocation Process has run into the wall (Bower et al. (2005): Budget gaming / politicking Too high information asymmetry Doesn t allow for intangible assets Doesn t facilitate synergies Doesn t facilitate modern business models Strategy execution (Kaplan & Norton 2008) is through: Strategic themes as cross unit accountable dimensions, funded by STRATEX Synergies are achieved planned & controlled through multidimensional accounting & control systems Time phased objective setting based on cause-and-effect relations and rolling forecasts Resource mobilization November 15, 2010 Nolan, Norton & Co 7

8 Alignment trap 4: ERP-systems are aimed at to be-in-control on level 1: existence, whereas to be in-control also requires capabilities of level 2: adaptation and level 3: transformation Control exists of three levels:* 1. Existence or being, the problem of maintaining organization even in the absence of external change counter entropy = AO/IC, ERM-COSO 2. Experience or behavior, the problem of adapting goal-directed processes to variation and change in external conditions flexibility 3. Evolution or becoming, the problem of reprogramming less successful goals and procedures while at the same time preserving more successful ones: business transformation *Beniger, James R The control revolution: technological and economic origins of the information society. Cambridge, Mass.: Harvard University Press, p. 66 To be in-control requires the organization of all types of information : 1. Goal-information (mission, strategic intent, objective function) 2. Motivation- or axiological information 3. External information Material information: a. Discursive information b. Disinformation Eidetic information 4. Instruction- or effect-information 5. Pragmatic information (= management information (=ICT)) November 15, 2010 Nolan, Norton & Co 8

9 Alignment trap 5: ERP-systems mechanize processes defined by existing business models whereas modern competition is on innovation of business models, including the distribution of value created Governance Logic: ownership, decision rights and equitable distribution of value created Process Logic: process architecture, driven by capabilities of technology November 15, 2010 Nolan, Norton & Co 9

10 Alignment trap 6: ERP-systems are based on information as a residual factor in the production function, whereas in modern business models information is an input in the production function The Elements of a Successful Business Model (Johnson, Christensen & Kagermann 2008) Customer Value Proposition Target customer Job to be done (use value) Offering Key Resources People Technology, products Equipment Information Channels Partnerships, alliances Brand Profit Formula Revenue model Cost structure Margin model Resource velocity Key Processes Processes Rules and metrics Norms ES/ERP November 15, 2010 Nolan, Norton & Co 10

11 Organization culture is the collective programming of the mind: How ICT has become part of the problem of cultural change and innovation; ICT needs to be re-programmed Development of a new business model Success reifies the business model Inability to see new opportunities and act on them; inability to build new business models Behaviors, skills, analytical tools reflect business model Business model embedded in organization Systems, business processes, ICT capabilities reflect business model Dominant logic becomes the lens through which new data is interpreted Recipes become dogma: dominant logic Model: Prahalad, C. K., & Krishnan, M. S. (2008). The new age of innovation : driving cocreated value through global networks. New York: McGraw-Hill, p November 15, 2010 Nolan, Norton & Co 11

12 Information is required for empowerment (leadership) of the (frontline) worker to create adaptability and agility of the firm, and to maximize information processing capabilities In a decentralized organization as many as possible members, on basis of: Goal information + targets Axiological information External information Effect-information Pragmatic information Fast feed-back control, panoptic control Allocated decision rights Resource mobilization can decide for themselves which of their alternative initiatives and decisions will contribute most to the performance of the firm, including externalities (Arrow, 1974) = to have sense & response to changing customer requirements = to have a best use of human capital Alberts, David S., and Richard E. Hayes. Understanding Command and Control, Future of Command and Control. Washington, D.C.: CCRP Publications, November 15, 2010 Nolan, Norton & Co 12

13 From the business-it alignment trap to the transformation of the business Business Information Technology Information Capital Category Description Strategy Opportunities Positioning Context Boundary Risk Projects Priorities Value Opportunities Positioning Context Boundary Risk Projects Priorities Transformational Applications Analytic Applications Systems and networks that change the prevailing business model of the enterprise Systems and networks that promote analysis, interpretation, and sharing of information knowledge Capabilities Leadership Governance People Partners Infrastructure Processes Organizatio n Culture Leadership Governance People Partners Infrastructure Processes Organizatio n Culture Transaction Processing Applications Technology Infrastructure Systems that automate the basic repetitive transactions of the enterprise The shared technology and managerial expertise required to enable effective delivery and use of Informational Capital applications The business-alignment paradigm as in e.g. Applegate, L. M., Austin, R. D., & McFarlan, F. W. (2006). Corporate Information Strategy and Management Kaplan, R. S., & Norton, D. P. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston, Mass: Harvard Business School Press, p November 15, 2010 Nolan, Norton & Co 13

14 Therefore essential layers are missing in Weill & Ross concept of ITgovernance: the entrepreneurial use of information Information as strategic environment Information as a resource Information management / policy Traditional IT-governance IT architecture decisions Organizing logic for data, applications, and infrastructure captured in a set of policies, relationships, and technical choices to achieve desired business and technical standardization and integration IT principles decisions High-level statements about how IT is used in the business IT infrastructure decisions Centrally coordinated, shared IT services that provide the foundation for the enterprise s IT capability Business applications needs Specifying the business need for purchased or internally developed IT applications IT investment and prioritization decisions Decisions about how much and where to invest in IT, including project approvals and justification techniques Scheme: Weill, P., & Ross, J. W. (2004). IT Governance: How Top Performers Manage IT Decision Rights for Superior Results. Boston, MA: Harvard Business School Press. November 15, 2010 Nolan, Norton & Co 14

15 Information Policy: typical constitutional decisions by the Executive Board required to create a multidimensional information space for the organization 1. The primary profit center is the customer a) Other reportable dimensions and their parameters are decided on basis of strategy, causal relations, possible new behavior of customers and competitors and legal requirements b) Performance is simultaneously reported on multiple dimensions 2. All customers are corporate customers, as are suppliers, and have one profile 3. There is one company wide (global) extended general ledger for all operations and entities, based on semantic standardization of the fields of the records as set by corporate accounting, this ledger records financial and non-financial data, external transactions, internal transactions, etc. 4. Customer data is corporate wide accessible, as is the data in the general ledger, except for some security restrictions (absence of information asymmetry) 5. All initiatives are to be based on integral business cases 6. Reporting of turnover and income (cost allocation) on each of the reportable dimensions and entities is by corporate accounting only (one trusted source for management information); no transfer prices 7. Contribution is recorded at the level of the individual creative knowledge worker, title moves with the individual, rewards are based on corporate performance November 15, 2010 Nolan, Norton & Co 15

16 What is or should be the purpose of the information policy of a firm? Expressed in Simons four levers of organization design To provide for effective strategy execution and to trigger the timely change to new business models and their execution Strategy and Structure To provide incentives and feed-back that are rewarding both the individual and will maximize the value of the firm Self-Interest and Mission Success Business Strategy Accountability and Adaptability To assist front line workers in responding to new customer demand, that is profitable for the firm and makes the firm to adapt to operational changes in the market Ladders and Rings To create successful teams and effective selfcoordination which produces actions that are profitable to the firm Simons, R Levers of Organization Design: How Managers Use Accountability Systems for Greater Performance And Commitment. Boston, Mass.: Harvard Business School Press November 15, 2010 Nolan, Norton & Co 16